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Structural Adjustment Programmes: Composition and Effects: Chapter 14: Akbar Zaidi
Structural Adjustment Programmes: Composition and Effects: Chapter 14: Akbar Zaidi
PROGRAMMES: COMPOSITION
AND EFFECTS
Lecture: 25 Chapter 14: Akbar Zaidi
General belief in developing countries :
Washington consensus has taken over and is
influencing to suit their own interest
4)Financial Sector
1. Improve regulatory framework
2. Relax interest rate ceilings
3. Restructure institutions
5) Industrial Policy
1. Remove protectionism
2. Encourage industries that produce for export
purposes
6)Agriculture
1. Remove bias against agriculture: remove protection
to industry
2. Discontinue subsidies
Implementation and Effects
Large number of studies
“We certainly cannot say whether the adoption of
programmes supported by the fund led to an
improvement in inflation and growth performance. In
fact, it is often found that programmes are associated
with a rise in inflation and fall in growth rate”
Fiscal cut: Fall in investment and growth, recessionary
Erosion of industrial base in fragile economies due to
openness
Social unrest
Fiscal Policy
Emphasis put on resource mobilization
Trade
Non-tariff barriers to be replaced by tariffs
allocating resources
Financial Sector
Targets?
GDP growth rates of 5.5% or above each year
Increase investment and improve its efficiency
Deregulation
Adjustment in administered prices
Better fiscal efforts
Achievements and Failures
Fiscal Policy: implementation was weakest in this area
Tax revenues as a % of GDP remained stagnant
Financial Sector
Resident Pakistani’s were allowed to open foreign currency
accounts in Pakistan (frozen in 1998)
Other Areas:
1. Agriculture
Performance of the agricultural sector, particularly cotton,
improved significantly
Subsidies on pesticides, seeds and agricultural machinery
were eliminated
Prices of fertilizers adjusted upwards
2. Industry
• Industrial value added increased by 6.3% p.a.
• Large investments undertaken in all major energy sources
• Cotton industries dominated
Achievements and Failures
Rampant inflation
long run
Did Pakistan need to go to the IMF?
The overall growth performance of Pakistan has
been good
1980’s: all the main economic indicators showed
very decent trends
Till 91-92, the economy continued to do quite well
GDP growth rates at around 5% p.a
Private investment increasing at 20% p.a since 1988
Exports increased substantially
Overall, the economy showed signs of immense prosperity
Pakistan’s economy was functioning adequately
without any assistance!
Did Pakistan need to go to the IMF?
Contrast with Bolivia in 1985:
Inflation rate: 11,000%
Fiscal deficit in excess of 30% of GDP
GDP per capita was 20% less than that in 1980
Pakistan has never been in such critical conditions,
though it may have gotten there on account of following
these programs!
While Pakistan’s economy needs better management,
reform and alignment, does it need to run to the IMF
every 3 years?
Why does each govt. accept the stringent conditions,
more loans and more debt?